Phoenix Group Holdings PLC (PNXGF) (Q2 2024) Earnings Call Transcript Highlights: Strong Growth ...
Investment: GBP164 million invested out of a planned GBP700 million.
Debt Repayment: GBP250 million paid off in the first half.
Recurring Management Actions: GBP264 million delivered in six months, targeting GBP400 million for the year.
Net Fund Flows: GBP3.3 billion in the first half, up 83% year-on-year.
Assets Under Administration: Up 9% on average.
Operating Margin: Increased from 14 bps to 17 bps.
IFRS Operating Profit: GBP149 million, up 31% compared to the second half of 2023.
Annuity Portfolio: GBP39 billion, representing 14% of total assets.
Annuity Premiums: GBP1.7 billion written in the first half, with an additional GBP400 million since June.
Capital Stream: Reduced to around 3%, enabling GBP6 billion of annuity premiums annually.
Total Cash Generation: GBP950 million, with operating cash generation up 19% to GBP647 million.
Adjusted Operating Profit: GBP360 million, up 15% year-on-year.
Statutory Loss After Tax: GBP646 million due to Solvency II hedging strategy impacts.
Interim Dividend: 26.65p per share, a 2.5% year-on-year increase.
Solvency II Leverage Ratio: Reduced to 35%, targeting 30% by the end of 2026.
Shareholder Capital Coverage Ratio: 168% at the end of June.
CSM Growth: 10% increase to GBP3.1 billion gross of tax.
Release Date: September 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Phoenix Group Holdings PLC (PNXGF) has invested GBP164 million of the planned GBP700 million to grow, optimize, and enhance its business.
The company has launched innovative new retirement income products and enhanced its annuity market propositions.
Phoenix Group Holdings PLC (PNXGF) has made significant progress in simplifying its business structure, leading to expected cost savings of around GBP50 million by the end of the year.
The company reported strong net fund flows of GBP3.3 billion in the first half, up 83% year-on-year.
Phoenix Group Holdings PLC (PNXGF) has reduced its annuity capital strain to around 3%, enabling it to write more premiums with less capital.
Negative Points
Phoenix Group Holdings PLC (PNXGF) reported a statutory loss after tax of GBP646 million due to the consequences of its Solvency II hedging strategy in IFRS reporting.
The company's shareholder equity has declined primarily as a result of the rise in interest rates.
Despite strong operating performance, Phoenix Group Holdings PLC (PNXGF) is still in net fund outflow.
The company has incurred higher non-operating expenses during its three-year investment phase.
Phoenix Group Holdings PLC (PNXGF) faces challenges in maintaining its leverage ratio target of 30% by the end of 2026.
Q & A Highlights
Q: Why aren't you increasing the full-year cash generation target despite strong half-year performance? A: We set three-year targets in March and are pleased with our progress. However, six months into a three-year plan, we won't upgrade targets yet. We're confident we'll hit the top end of the range for the year without any timing issues. (Andrew Briggs, CEO)
Q: Can you explain the negative IFRS earnings due to economic movements? A: The decline in shareholder equity is primarily due to rising interest rates, a consequence of our hedging strategy which protects our capital surplus and cash generation. Our focus is on growing operating profit to cover all recurring uses, ensuring shareholder equity grows annually. (Andrew Briggs, CEO; Stephanie Bruce, Non-Executive Director)
Q: Why did you pull out of the Sun Life sale process? A: We concluded that a disposal wouldn't maximize shareholder value due to current market uncertainties. Retaining and growing the business within the group is the highest-value approach. (Andrew Briggs, CEO)
Q: Can you provide more detail on the strong recurring management actions? A: These actions involve optimizing our balance sheet without increasing risk, similar to what our peers do. We've invested in systems, processes, and people to achieve this, and we're confident in maintaining this level of recurring management actions going forward. (Andrew Briggs, CEO; Stephanie Bruce, Non-Executive Director)
Q: How are the new product launches like individual annuities and the smooth fund performing? A: The smooth managed fund has been well-received, with around 70-80 adviser firms paneling it. Individual annuities and fixed-term annuities have also seen positive initial trading, and we expect significant growth in these areas. (Andy Curran, Chief Executive - Savings and Retirement, UK and Europe)
Q: Can you explain the impact of hedging on shareholder equity and how it might change with interest rate movements? A: Our hedging strategy protects the Solvency II surplus, which stabilizes cash generation and supports our dividend. While it causes accounting volatility, our focus is on growing operating profit to manage this. The strategy is reviewed periodically by the Board. (Andrew Briggs, CEO; Stephanie Bruce, Non-Executive Director)
Q: What gives you confidence in achieving the increased recurring management actions target? A: We've invested in capabilities and processes that have already shown strong results in the first half. This gives us confidence in hitting the GBP400 million target this year and maintaining it in future years. (Andrew Briggs, CEO)
Q: Can you provide guidance on fund flows for the second half and when you expect total group net flows to become positive? A: We expect continued strong workplace net fund flows, with some lumpiness due to large one-off transfers. BPA premiums are expected to be around GBP6 billion annually. The retail side offers significant upside potential, and we're focusing on new propositions to drive growth. (Andrew Briggs, CEO)
Q: Is the current level of solvency strain sustainable, and how do you view the impact of consumer duty on closed books? A: The 3% strain is sustainable due to structural changes from our Part VII fund merger. We're confident in our compliance with new consumer duty regulations and see no issues. (Andrew Briggs, CEO)
Q: How do you plan to achieve the target leverage ratio of 30% by 2026? A: We plan to repay at least GBP250 million of debt, which will reduce the leverage ratio by about 2 percentage points. Additionally, we aim to grow own funds through strong operating performance and cost reductions. (Andrew Briggs, CEO; Stephanie Bruce, Non-Executive Director)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.